by Ian Randall/September 27, 2016

I live in Brighton, a wealthy, vibrant, liberal city; and yet I have dear friends who sometimes end the month without enough money to buy food. They have no assets to draw upon and, despite earning salaries around the national average, there seems little hope of this changing. Meanwhile, each year, I manage to get a little richer. I cannot easily explain or justify the scale of this divergence. We all work hard and purposefully. In the Monopoly game of life, in my 20s I was lucky enough to start accumulating capital whilst they never have. This arbitrary and seemingly inevitable inequality seems profoundly unfair and damaging.

In trying to understand why this disparity seems inevitable, I have concluded that rising inequality will emerge as a defining complex challenge of the 21^st Century. Unless the global community acts intentionally to temper this long-term economic trend, then highly destructive social forces will emerge to do so. Wasafiri’s growing understanding of how to manage complex change offers important insights on how to turn the tide on extreme inequality.

Inequality is bad and rising

In developed economies, as much as poverty, it is strong inequality that drives social ills. In “The Spirit Level” Kate Pickett and Richard Wilkinson  present strong evidence that more unequal societies have worse health, crime and social cohesion. The stress and behaviours caused by people trying to keep up economically are bad for rich and poor alike. Less equal societies are also expensive for the public purse, as the state struggles to prop people up when housing and nutritious food are less affordable; crime is higher; and communities care for each other less. More equal societies, such as Denmark, are those in which citizens are happiest. Even environmental performance is worse in less equal countries, as consumption habits are driven by materialistic pressures to keep up; and people are less willing to support concessions in favour of long-term public goods.

Meanwhile, decade on decade, inequality is rising across the developed world. In his seminal text, “Capital in the 21^st Century”, Thomas Picketty shows this empirically, and demonstrates that the simple mathematics of economic growth is inexorably shifting global wealth into the ownership of fewer and fewer people. In the USA, which is the most unequal developed economy, the top 10% earn close to half of total income. This compares to a third in the 1950s. Wealth inequality is even more eye-watering, with the bottom 50% owning almost no capital and the top 10% owning 75%. Whilst the USA is the most unequal major economy, all developed countries from Sweden to Australia are showing the same steady rise in inequality.

Most fundamentally, inequality is rising because the average rate of return from capital, which remains historically steady at about 5%, is greater than the rate of GDP growth achievable by developed economies over the long-term. Whilst incomes from labour are not keeping up with incomes from capital, those people who have capital will steadily accumulate more and more. This is exacerbated further by the very rich achieving higher rates of return than the merely wealthy; and inheritance ensures this wealth stays within the same families. Without significant compensatory measures in place, we have an economic system that is hard-wired to make an increasingly small elite richer, relative to the rest of the population.pay

This trend is also significant for developing economies. During their demographic and economic transition, the growth rates for population and GDP provide a countervailing trend so that inequality is more likely to reduce or remain steady; and reduction of extreme poverty will offer more significant social progress than a focus on reducing inequality. Nonetheless, the recently adopted Sustainable Development Goals (SDGs) included a goal to reduce inequality, citing evidence that income inequality increased by 11% in developing countries between 1990 and 2010 and that, beyond a certain threshold, inequality harms growth and poverty reduction, the quality of relations in the public and political spheres, and individuals’ sense of fulfilment and self-worth. All the development rhetoric, effort and investments regarding inclusive growth will only secure temporary gains, if, as economies mature, the inevitable historic outcome is extreme inequality.

If extreme inequality is both bad and inexorably rising, then we have a problem. One does not need to believe in the need for equality, to recognise that at some point extreme inequality becomes unjust and damaging.

In the USA and Western Europe, inequality last peaked in the early 20^th Century, at which point it took the disruptive impact of two World Wars and the Great Depression to diminish the extreme capital accumulation and drive socially progressive reforms such as the welfare state, access to education, and labour rights. The rise of populist and divisive rhetoric from politicians like Donald Trump, Marine le Pen and Nigel Farage, has grim echoes from a century ago. Nonetheless their messages resonate with a mass of people who feel excluded from any economic recovery; hear of CEO bonuses and multinational tax bills with resentment; and feel threatened by the forces of globalisation. Arguably, a similar sense of exclusion is a contributing factor to the rise of violent extremism

Inequality is complex

Rising inequality presents a complex challenge on a scale matched only by climate change. It is an outcome of a highly-entrenched and interconnected set of dynamics within our economic system. The problems it creates are emergent and unpredictable. The whole system is the product of the daily norms and actions that underpin the economic life of billions of people. Power lies disproportionately with those actors who benefit from inequality the most; and many of us hold a worldview that justifies inequality as the rightful outcome of aspiration, hard work and talent.

What do we know about delivering change in complex systems that might help?

1. Set a target:

The climate change response has benefitted enormously from the target of limiting temperature rises to 2%. Similarly, partners have collaborated to transform African agriculture because of an AU target to achieve 6% growth in the sector. A target becomes a rallying call to interested parties. It simply defines a compelling common ambition without people and institutions having to agree on the best way to respond. It starts the debate and holds everyone to account.

If each G8 country set a high-profile target cap for inequality, it would positively drive public discourse and inspire policy reform. Imagine that a UK Government committed that the top 20% should not earn more than ten times more than the bottom 20%. No future government would ever dare raise the target cap, and more likely they would feel compelled to lower it. At some point, as extreme inequality rose toward the target, political pressure would mount for the government to lead policy reforms that would have systemic consequence.

Tantalisingly, the SDGs have set a globally agreed target that by 2030 each country should “progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average”. There are two problems with this target though. Firstly, it is a weak target because it only addresses the bottom end of rising inequality, so it could be achieved whilst the top 1% continue to accumulate ever greater wealth. Secondly, whilst unlike their predecessors the Millennium Development Goals, the SDGs are meant to apply globally and they are largely being ignored by developed countries. Government committees in the UK, USA, Germany and elsewhere have considered their role in achieving the SDGs; but seem to assume the goals are irrelevant domestically, or will be easily achieved through existing policy measures. Nonetheless, the SDG target could offer a starting point around which to create a movement for change and hold governments to account.

2. Create an inclusive movement:

Extreme inequality is ultimately bad for everyone. Higher crime, poorer health and less cohesive communities impact all –  and cost more to manage. Arguably, the 2008 economic crisis was precipitated by vast accumulated capital seeking returns from lending to people who did not have the incomes needed to pay for their debt. At some level of inequality, the political and economic elite cannot sustain their position without risking calamity. Tackling extreme inequality will also require leadership from them. The historical alternative is revolution. If Marie Antoinette had understood this, then perhaps she could have kept her head.

Hence building an inclusive movement is vital. Participation and leadership from across the political, economic and social spectrum will be needed. Fairness Commissions offer an interesting model that could be replicated at national level. These cross-sector leadership bodies have been formed by progressive councils in the UK and USA to identify the drivers of inequality in their areas and identify interventions that can address the worst problems. They include leaders from across the private sector, public sector, voluntary bodies and religious groups. Together they bring enough different perspectives to understand their city’s economic and social dynamics, propose solutions and provide a mandate for action.

3. Experiment:

From across the ideological spectrum, people champion very varied interventions to tackle rising inequality, for example investing in education to drive social mobility; a citizens’ income; land value tax; capping the ratio between top and bottom salaries within companies; and a global wealth tax. Sweden has comparatively low inequality because of higher taxation, whereas Japan has comparatively low inequality because of cultural norms on pay scales.

Work on complex change tells us that silver bullets are rare, and we must experiment and iterate to discover the interventions that work in any given time and place. Compelled by national targets to act, supported by a growing and inclusive movement advocating change, countries will need to learn what works and take interventions to scale at a pace that allows economic and social norms to adjust incrementally. The alternative is traumatic shocks such as economic depression, or even war, as inherent tensions build to the point where the economic system violently leaps from one state to a new more balanced one.

4. Seize the moment:

The existing status quo in any system will resist change. However, there is always flux and every so often a window of opportunity opens up, during which change becomes more possible. British Eurosceptics have been shouting in the wind for decades, but the combination of Cameron’s promise of a referendum, the immigration crisis, and an empty economic recovery, all aligned for the nation to choose Brexit. Similarly, political windows of opportunity will fleetingly emerge, in which historic progress can be made to reverse the tide on rising inequality. If targets exist, if an inclusive movement has formed, and experimentation is underway, then we will be ready to seize those moments when they come.

 

Have hope. Be ready. My friends need not always worry about affording food in the days before pay day.

Ian Randall

September, 2016

https://www.equalitytrust.org.uk/resources/the-spirit-level

by Ian Randall/July 14, 2014

“Grow Africa, your immense contribution to African agriculture is exemplary.”

Akin Adesina, Nigeria’s Minister of Agriculture

 Grow Africa has received some remarkable and enthusiastic plaudits. Yet what is it about it that has enabled it to rapidly deliver change at scale, where so many others have failed?

Grow Africa can claim some big numbers. In May 2014, they announced that, during 2013, the partnership’s private sector commitments to invest in African agriculture doubled to a total of $7.2 billion. Of which $970 million was already invested, creating 33,000 new jobs and reaching 2.6 million smallholder farmers across 10 countries. At Grow Africa’s Investment Forum, leaders, including five Heads of State heralded this as remarkable progress for an initiative that is barely 2 years old. Raj Shah, head of USAID, stated that Grow Africa has shown that “success at scale is now possible. This effort can effectively end poverty and hunger in Africa.” Amena Mohamed, the UN Secretary General’s Special Advisor for post-2015 MDG planning, saw Grow Africa as a model to replicate to ensure that the vision for next MDGs could rapidly translate in to action, in a way that traditional development approaches have not proven able.

For Wasafiri, which has played an instrumental role in conceiving and managing Grow Africa, these accolades are clearly affirming and gratifying. Nonetheless, such unbridled enthusiasm begs the questions “What has made Grow Africa such a success?” and “Why is its approach not adopted more widely to deliver change on other systemic challenges?”

A recent article in the Stanford Social Innovation Review entitled “Shaping Global Partnerships for a Post-2015 World” examined Grow Africa alongside five other pioneering cross-sector initiatives to ask how to unlock collective impact at a global scale. It concluded, “The most important condition is establishing a backbone structure that acts as the glue, holding the partners together and ensuring that the other four conditions are in place. The backbone provides strategic coherence around the common agenda, establishes shared measurement and learning systems, supports the mutually reinforcing activities of the different partners, and facilitates continuous communication.”

While Grow Africa certainly embodies all those features, I believe the story of its success is more complex. Or rather, I think there are underlying aspects of the global political economy that usually subvert the emergence of such elements when people attempt to collectively tackle change at scale.

Alignment of interests

Grow Africa is blessed by emerging at a moment of alignment for political, commercial and social interests. The 2008 food crisis changed the underlying economics of agriculture. The world realized that Africa must become a global food basket if we are going to feed 9 billion by 2050, while accommodating changing consumption habits, and linking food to energy through bio-fuels. Enlightened businesses – small and large – realized that African agriculture was going to grow, and they had a strong commercial interest in being in the vanguard. Africa’s politicians serve citizens who are primarily rural, and half of whom are under 20. Their political imperative is to increase rural incomes and generate jobs, or risk wide-scale unrest and disaffection. And for development aficionados, agriculture represents the best opportunity to reduce poverty and hunger. Everyone from smallholders to multinationals, and from African Heads of State to G8 Development Ministers, could rally behind Grow Africa’s common agenda of accelerating investment for sustainable agricultural growth. The only sustained dissonance has come from a few Western-based, ideologically-driven voices who fundamentally distrust the private sector.

Few other global issues currently benefit from such alignment. Climate change is riven with competing interests and public health issues struggle to attract strong commercial engagement. However, the same would have been said about African agriculture a decade ago. Perhaps part of the secret is sniffing out the right historical moment when interests align, and then to forge global partnerships to drive change at scale as fast as possible while the political window of opportunity lasts.

Coalition of the willing

Grow Africa is also unusual in welcoming all parties, without finding itself paralysed by the outcome. Many multi-stakeholder initiatives end up crippled by one of two effects. Firstly their governance often demands consensus, which means they become hostage to minority interests. For example, whilst a reasonable number of governments and actors seemed willing to act on climate change, negotiations, in attempting to accommodate everyone’s demands, have either ended up in a stalemate or conceding to the lowest common denominator. Secondly, successful initiatives are asked to layer on issue after issue, until their mandate is too diffuse and complex to meaningfully deliver anything. CAADP (Africa’s overarching plan for agriculture) is at risk of this as it is expected to address issues as varied as nutrition, climate change, job creation, regional trade, tertiary education, natural resource management.

So far, Grow Africa has evaded these pitfalls. Its clear focus on the commercial and development opportunity presented by agricultural investment, has allowed it to welcome all parties who are committed to advancing the agenda – a coalition of the willing. Co-convened by AUC, NEPAD and the World Economic Forum, but serving a wide range of stakeholders from Farmers Organisations to Multi-nationals to donors, it has created a space in which minority voices are heard, but that majority interests then drive action.

The World Economic Forum’s role in this cannot be underestimated. Most influential development actors are effectively civil service in culture – whether governments, African institutions, donors, or multilaterals. Too often their accountability pressures are to avoid obvious failure, rather than to deliver results at scale – leading to an aversion to taking risks, a focus on appeasing all interests, and a default towards extending timelines rather than making swift decisions. The World Economic Forum brings a refreshing private sector orientation that, whilst very protective of reputation, is ultimately dependent on showing it can deliver.

For more insight into the work of Grow Africa, view the latest report